Stock Quotes in this Article: CVX, GE, VZ

 MINNEAPOLIS (Stockpickr) -- The popular Dogs of the Dow, formulated in the early 1990s, suggests that investors try to outperform the market by owning the 10 highest-yielding stocks on the Dow.

The "dog" component came about due to the fact that a high-yielding stock tends to be a stock that has gone down in price. Theoretically, any lag in performance is merely temporary, and investors can profit from owning a cash-paying stock at a low price.

Add in any appreciation on the stock, and total performance beats any other approach -- or so goes the theory. In 2011, I am of a different view. Instead of owning the Dogs of the Dow, I want to own what I will call the Dolls of the Dow.

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    My Dolls of the Dow are the stocks on the Dow Jones Industrial Index that I believe will outperform the market due to valuation, growth prospects and execution. Any dividend payments are simply a bonus.

    We have already seen a preference for larger stock thus far in 2011. That trend should continue for the remainder of the year. Last year, dividend-paying stocks did very well. This year, the story will be more about growth.

    If you can buy that growth at a cheap price, all the better. The market is starting to figure that out. Best to jump on board before the train leaves the station.

    Here are three Dolls of the Dow stocks to consider.

    Chevron

    On the heels the Chinese President President Hu Jintao's visit to the U.S., observers should note the current state of geopolitics. Why would China risk aggravating the U.S. by doing business with U.S. adversaries such as Iran and North Korea? The answer is simple: oil!

    For anyone to think otherwise is a bit naive. Oil is in short supply, plain and simple. As long as global economies continue to grow, oil prices will go up -- and possibly go up significantly.

    That alone is reason enough to make Chevron (CVX) one of the Dolls of the Dow. The vertically integrated oil company will benefit greatly from higher oil prices. It already prints money. Higher prices simply mean it prints more.

    Even without higher oil prices, Chevron is attractive. Analysts expect the company to make $9.39 a share in profits in the year just ended. In 2011, the estimate is for a profit of $10.39 a share. That 10.5% growth can be purchased for just 10 times 2010 earnings and nine times 2011 earnings.

    That is cheap, especially when you consider that the company pays a 3.1% dividend. If oil prices blow through $100 per barrel, profit estimates will be too low. Double-digit growth potential at a single digit price earnings ratio makes Chevron an attractive stock to own now.

    Chevron comprises 2.8% of T. Boone Pickens' BP Capital portfolio. The stock is one of the 10 cheapest Dow dividend stocks based on cash flow per share and one of the five best energy stocks for $100-plus oil, according to Jake Lynch. With an A- buy rating, Chevron is one of TheStreet Ratings' top-rated oil and gas stocks.

    General Electric

    It has been a long road to recovery for industrial icon General Electric (GE). A disastrous foray in the debt markets nearly crushed the company during the financial crisis and great recession. Great efforts to repair its balance sheet and eliminating junk loans from its portfolio allow the company to return its focus to dominance in industrial manufacturing and sales.

    The recent Chinese visit provided the occasion for the company to announce five new business cooperation deals with Chinese companies. The deals, which cover clean energy production, aviation and rail transportation, are expected to generate some $2 billion in sales.

    On Friday, General Electric announced results for the fourth quarter. The company posted a profit of 36 cents per share. Analysts were looking for 32 cents a share. Shares of General Electric surged some 8% on the news.

    Analysts expect General Electric to grow earnings by 15% to $1.29 a share in 2011. Given the strong results in the fourth quarter, look for the estimates to increase. At a current price around $20 per share, General Electric trades for just 15 times the 2011 estimate.

    Not many industrial companies deliver 15% profit growth while paying a 3% dividend. I expect 2011 to bring good things for this Doll of the Dow stock.

    As of the most recent reporting period, GE comprises 0.3% of Warren Buffett's portfolio and 1.6% of Bill Miller's at Legg Mason Capital. It was recently highlighted as one of 10 Dow stocks likely to boost dividends in 2011, and on a recent "Mad Money" show, Jim Cramer said GE was one of several stocks signaling a "momentum shift in the markets."

    Verizon

    If Apple (AAPL) were a Dow stock, it would be the leader of the Dolls of the Dow. In its absence, I’ll take new Apple wireless partner Verizon (VZ) as the next best thing. The continued move to smartphones bodes well for this giant telecommunication concern.

    The ability to offer the iPhone on its network creates a growth opportunity not heard of with most Dow component stocks. The prospects are truly stunning.

    At the moment, analysts are underestimating the potential of the affiliation with Apple. For proof, look no further than Apple’s most recent quarterly results. Smartphones and iPads are the future, and Verizon will be a big part of that future.

    The current estimate is for Verizon to make $2.25 a share for the year just ended. Where analysts make the mistake is in assuming that the company will only make $2.22 a share in the next year. Are you kidding me?

    An affiliation with the greatest growth story of the decade resulting in an earnings decrease is a bit too conservative an outlook, I would say. I expect Verizon to blow away current estimates. Shares trade for a modest 15 times the 2010 estimate. The company also pays a dividend north of 5%.

    I would want to own this stock and hold on for the fireworks of 2011. It should be spectacular for this Doll of the Dow.

    Verizon comprises about 1% of George Soros' portfolio. According to Robert Holmes, Verizon is one of the 10 best dividend stocks to play defense in 2011. With a B buy rating, it's one of TheStreet Ratings' top-rated telecommunications stocks.

    To see the rest of my Dow picks, visit my Dolls of the Dow Stocks portfolio.

    -- Written by Jamie Dlugosch in Minneapolis.

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    At the time of publication, author had no positions in stocks mentioned.

    Jamie Dlugosch is a founder and contributor to MainStreet Investor and MainStreet Accredited Investor. Formerly, he was president and CEO of Al Frank Asset Management. He has contributed editorially to The Rational Investor, The Prudent Speculator, Penny Stock Winners and InvestorPlace Media.